Prospects for EU-25 agricultural markets and income 2005-2012 Update December 2005

1. CER(06)18X1 Prospects for EU-25 agriculturalmarkets and income2005-2012 Update December 2005

2. Structure of the presentation • Introduction • Analytical approach • Methodology • Main assumptions • Main results: • Projections for cereals, oilseeds, meat, eggs and dairy • Income projections

3. Methodological approach • Type of models: DG AGRI market projections carried out using two recursive dynamic partial equilibrium models • Results: model output consists of supply balance sheets for main commodities, market prices and income • Detailed results for: • Old Member States (EU-15) • New Member States (EU-N10) • EU-25 For main commodities/variables

4. Methodological approach • Main assumptions: • Uruguay Round Agreement on Agriculture maintained constant • Favourable, though moderate world agricultural market outlook • Return to modest economic and population growth • $/€ exchange rate to reach 1.15 by 2012 • By 2012 direct payments are assumed to be 90% decoupled (milk 100 %, arable crops 93 %, beef 78 %, sheep 73 %)

5. Assumptions for $/€ exchange rate and GDP growth

6. Prospects for agricultural markets 2005-2012Cereal and oilseed sectors

7. Crops • medium term perspective appear moderately positive for crop markets in line with: • CAP reform and decoupling; • the return to higher set-aside levels in 2005/06; • favourable world market conditions and • the expected return to improved exchange rate conditions • short to medium term risk of regional imbalances due to lack of integration into the single market.

8. Slightly expanding cereal markets…. Development of cereal markets in the EU, 1995-2012 (mio t)

9. …balanced by higher levels of set aside… Development of set aside in the European Union (mio ha)

10. … with moderate levels of stocks …. Development of stocks and cereal exports in the EU, 1995-2012 (mio t)

11. …and declining levels of maize and soft wheat stocks over the short to medium term ….. Composition of public stocks in the EU (mio t), 1995-2012

12. Prospects remain conditional on exchangerate environment: asymmetric risks Cereal stocks in the EU under different exchange rate assumptions (mio t)

13. Good overall perspectives on soft wheat markets – with regional appearance of public stocks….. Development of soft wheat markets in the EU (mio t), 1995-2012

14. …further loss of competitiveness of barley and accumulating public stocks in the short to medium term, Development of barley markets in the EU (mio t), 1995-2012

15. …growing competitiveness of maize use after 2008 but short term segmentation of markets due to high transport costs Development of maize markets in the EU (mio t), 1995-2012

16. …. short-term pressure on rye markets……. Development of rye markets in the EU (mio t), 1995-2012

17. …good prices should raise incentives to produce durum wheat. Development of durum wheat markets in the EU (mio t), 1995-2012

18. Moderate perspectives on oilseed markets • increase of area, mainly rapeseed; • energy oilseeds production would increase under current policies but demand would outpace production; • rapeseed and rapeseed oil imports foreseen to increase. • EU remains major net importer of oilseeds and vegetable oils.

19. Prospects for agricultural markets 2005-2012Meat sector

20. Meat • Beef production lower than consumption in 2003 for the first time in 20 years and expected to remain so throughout the projection period due to: • Declining cattle herd from dairy sector • Impact of decoupling of direct payments • Impact of market disruptions of 2001 BSE crisis • Pig meat production expected to keep its slight growth thanks to: • Solid demand both in the EU15 and in the new Member States • Expected profitability with good pig meat prices and relatively low feed prices • Poultry meat demand and production to remain strong • Limited recovery in sheep/goat meat production after 2001 FMD results in high market prices

21. EU to remain net importer of beef meat over the medium term EU production, consumption, trade and intervention stocks (mio t c.w.e.)

22. Growth rates for pig meat production and consumption are expected to be lower than in the 90s EU production, consumption and trade (mio t c.w.e.)

23. EU poultry production to keep its growth over the medium term in line with growing consumption EU production, consumption and trade (mio t c.w.e.)

24. EU sheep/goat sector not to fully recover from the 2001Foot and Mouth Disease EU production, consumption and trade (mio t c.w.e.)

25. Total EU meat consumption to resume its long term growth EU per capita consumption (kg/head, in carcass weight equivalent)

26. Prospects for agricultural markets 2005-2012Milk and dairy sector

27. Milk and dairy products • Medium term perspective appear positive for EU dairy markets thanks to the: • Increase in domestic demand for cheese and other value-added dairy products • Decrease in production of residual bulk products like butter and SMP facing lower support and market prices • Increasing use of milk for the production of cheeses and other high value-added dairy products for the domestic market limits availabilities for exports

28. Milk quotas to constrain EU milk production while growing milk yields reduce dairy cow herd EU milk production, deliveries to dairies, dairy cows

29. EU cheese market keeps its steady growth over the medium term EU production, consumption and trade (mio t)

30. EU butter balance to improve over the medium term EU production, consumption, trade and intervention stocks (mio t)

31. EU Skimmed Milk Powder (SMP) market to shrink over the medium term leaving less SMP available for exports EU production, consumption, trade and intervention stocks (mio t)

32. Prospects for agricultural markets and income 2004-2012 The development of agricultural income

33. A moderately positive outlook for real farm income in the old Member States….

34. … with high income gains in the new Member States